TaxTMI 
TaxTMI 
2024 (7) TMI 631
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....ional Commissioner of Income-tax (Transfer Pricing-l), Bangalore ('Ld TPO') and the Hon'ble Dispute Resolution Panel, Bangalore ('Hon'ble DRP') is not correct as it is based on incorrect assessment of interpretation of facts and law and therefore is bad in law and hence, needs to be cancelled. The Appellant also submits that each of the grounds - hereinafter are independent and without prejudice to one another. Based on the facts and in the circumstances of the case, the Ld.AO/Ld.TPO and the Hon'ble DRP have: Transfer Pricing Issues 1. Erred in rejecting the transfer pricing documentation maintained by the Appellant and making adjustments in respect of the following international transactions with its AEs: Provision of software services- Rs. 41,02,20,628; Provision of Information Technology enables Services ('ITeS')- Rs. 14,72,66,223; and Purchase of advertisement space for distribution to the advertisers in India -Rs. 26,76,85,095. 2. Erred in using single year data of companies to determine the arm's length price of the international transactions without considering the fact that the same was ....
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....neous data (i.e., data existing before the due date of filing of return of income) and in undertaking a fresh comparable search during the course of assessment proceedings, using information/data which was not available to the Appellant at the time of satisfying the mandatory documentation requirements. 13. Erred in inter-alia using of the following additional filters in undertaking the comparative analysis for rejecting comparable companies having: a) Diminishing revenue; and b) Different year end. 14. Erred in not undertaking an objective comparative analysis and inter-alia selecting the following companies as comparable to the ITES services of the Appellant; a) Accentia Technologies Ltd; b) Eclerx Services Ltd; c) Infosys BPO Ltd; and d) Informed Technologies India Ltd. 15. Erred in not undertaking an objective comparative analysis and inter-alia rejecting the following comparable companies: e) Lee & Nee Software Ltd; and f) Microland Ltd (Call Centre segment). Grounds specific to TP adjustments relating to payment for purchase of advertisement space under the AdWords program. ....
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....usiness profits in India. 27. Having held that the Appellant was an agent of Google Ireland Ltd. erred in holding that Appellant 'was a person responsible for paying' any amount to Google Ireland Ltd. within the meaning of section 195 of the Act and that the Appellant gas failed to deduct tax at source on the amounts payable to Google Ireland Limited. 28. Having held that the Appellant creates a Dependent Agent Permanent Establishment of Google Ireland Limited in India, erred in attributing business profits, ignoring the fact that the Ld.TPO has determined the arm's length remuneration for the Appellant and hence there was no additional income chargeable to tax in India in the hands of Google Ireland Ltd requiring any deduction of tax at source under Section 195 of the Act and hence no disallowance under section 40(a)(i) of the Act is warranted. 29. Having held that the Appellant was an agent of Google Ireland Ltd. erred in holding that Appellant 'was a person responsible for paying' any amount to GBP3oogle Ireland Ltd. within the meaning of section 195 of the Act. 30. Erred in alternatively holding the amount payable towards ....
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....the assessee to M/s Google Ireland Ltd. only. 5. The DRP erred in holding that for implementing residual profit split method the normal profit of M/s Google Ireland Ltd. also needs to computed and reduced without appreciating that there is no routine profit of M/s Google Ireland Ltd. as no other functions have been performed by M/s Google Ireland Ltd. apart from contributing only the tangibles which is a non-routine function and for which the TPO had already attributed 50% of residual profit. 6. The DRP erred in holding that for the purposes of bench marking, ITES and Adwords distribution segments are to be treated separately without appreciating that the international transactions relating to ITES and Adwords are connected to each other and cannot be analyzed and evaluated separately for determination of ALP, 7. The DRP erred in directing to adopt profit split method for Adwords distribution segment instead of profit split method without appreciating the fact that the TPO had demonstrated the necessary evidences for the various functions the assessee has performed such as rendering ITES to M/s Google Ireland Ltd., providing marketing services and contrib....
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.... on the facts and in the circumstance of the ease erred in not appreciating the fact that the assessee should have declared incomes with respect to its revenues and not with respect to its cost as the whole agreement with Ms. Google Ireland Ltd is a ploy to evade payment of taxes in India. ,16. The DRP erred in not appreciating the fact that it has been brought out in great detail in the assessment order that the entire advertising business (Adwords) is treated as one enterprise in India and that there is only one profit earned out of the said enterprise. 17. The DRP erred in not appreciating the fact that for the lack of a better alternative the total Adwords revenue from the advertisers during the year was considered at Rs. 403,34,38,319/-rather than consider the actual Adwords revenue of Rs. 241,71,64,576/- in line with the global profits of Google Inc USA and the profit represents the entire profit of the enterprise to be in the hands of M/s Google India Pvt. Ltd. as well as M/s Google Ireland 18. The DRP erred in not appreciating the fact that Rs. 117.37 cores being the difference between and the cost has been held to be the escaped profit of the ent....
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....ake out a case which is beyond the scope of assessment framed by the authorities below. The Ld.AR in the written submission dated 14/11/2023 submitted that it is beyond the scope of the revenue to raise these additional grounds, as, such powers vests only with the Ld.CIT under section 263 of the Act to revise any order which is erroneous and prejudicial to the interest of the revenue. The Ld.AR in his written submission dated 14/11/2023 relied on following decision in support of his argument that scope of issues raised before this Tribunal must be confined to supporting or defending the impugned order: * Decision of Hon'ble Mumbai Tribunal in case of CIT vs. Aishwarya K. Rai reported in (2010) 127 ITD 204 * Decision of Hon'ble Pune Tribunal in case of ITO vs. Anant Y. Chavan reported in (2009) 126 TTJ 984 * Decision of Hon'ble Special Bench of Mumbai Tribunal in case of Mahindra & Mahindra Ltd. Vs, DCIT reported in (2010) 122 ITD 216 * Decision of Hon'ble Jodhpur Tribunal in case of (2008) 110 ITD 59 * Decision of Hon'ble Kolkata Tribunal in case of Smt. Bhagwati Devi vs. ITO reported in (1993) 47 ITD 58 * Decision of Hon'ble....
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.... final assessment order can only be erroneous only when the Assessing Officer has not followed the mandate of section 144C(13). We refer to the decision of Hon'ble Delhi High court in the case of Jai Parobolic Springs Ltd. Vs. CIT reported in 306 ITR 42, wherein Hon'ble Delhi High court has observed that the power of the Tribunal to entertain additional ground is not in any way restricted in view of the decision of the Hon'ble Supreme Court in the case of Goetz India Ltd reported in (2006) 284 ITR 323. In the case of Jute Corporation of India Ltd. v. CIT reported in (1991) 187 ITR 688 while dealing with the powers of the Appellate Assistant Commissioner, Hon'ble Supreme Court observed that :- '...An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in ....
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....lled for the economic details of the international transaction in Form 3CED. The Ld.TPO noted that for the year under consideration the assessee has following international transactions with its AE: Provision of software services Rs. 41,02,20,628 Provision of Information Technology enables Services ('ITeS') Rs. 14,72,66,223 Purchase of advertisement space for distribution to the advertisers in India Rs. 26,76,85,095 3.3. The Ld.TPO after considering various submissions, proposed following transfer pricing adjustments in the hands of the assessee: The Ld.TPO passed transfer pricing order on 29/01/2013 u/s. 92CA(3) proposing a total adjustment at Rs. 128,35,12,263/- 3.2 On receipt of the order u/s.92CA(3), The Ld.AO passed the Draft Order on 04/03/2013 and proposed total addition after incorporating the transfer pricing adjustment proposed by making following additions: * Re-computed deduction u/s.10A of the Act, by reducing telephone charges of Rs. 62,543,937/- and internet charges of Rs. 47,439,522 from export turnover without simultaneously reducing it from the total turnover. This has resulted in reduction on amount of profits eligible ....
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....red the profitability of the Assessee with those companies, which were engaged in rendering KPO services and computed an adjustment of INR 44,84,24,329/-. (ii) He further submitted that on raising objection, the DRP, vide directions dated 30.12.2013 upheld the re- characterisation done by the TPO in the IT segment, directed the TPO to, inter-alia, exclude one of the comparables being Coral Hub, from the set of final comparables. Pursuant to the directions of the DRP, the Ld.TPO revised the adjustment in the IT segment to Rs. 41,02,20,628/-. (iii) The Ld.AR submitted that the Assessee entered into Advance Pricing Agreement ("APA") dated 04.12.2019 with Central Board of Direct Taxes ("CBDT") and the APA covers the international transaction of provision of IT services to Google Inc., USA for AY 2010-11 to 2018-19. He submitted that though for the year under consideration, is not covered under the APA, it has been consistently held by various Courts, that the methodology adopted in an APA should be adopted for benchmarking the international transactions, as long as the functions performed, assets utilised, and risks undertaken ("FAR") remain the same among the AEs during the subj....
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....n for the year under consideration. He referred to Rule 10TA of the Income-tax Rules, wherein "software development services" [Rule 10TA(m) of the Rules] is a separate category of services in comparison to KPO services [Rule 10TA(g) of the Rules]. He thus submitted that, there is no merit in re-characterizing the provision of IT services as KPO services by the Ld.TPO and benchmarking it accordingly. (vii) The Ld.AR submitted that, as per the APA entered into by the Assessee for AY 2010-11 to 2018-19, the Assessee is characterised as rendering software development services and not KPO services. He submitted that as there was no change in the FAR analysis of assessee and the AEs for the assessment year under consideration and AY 2010-11 to 2018-19, for which APA was approved, and that though the APA was not binding for the assessment year under consideration, it would have persuasive value as per the ratio laid down by various decisions herein above. The Ld.AR thus prayed that for the captioned AY as well, the IT segment be benchmarked by the TPO by taking into account profitability of comparable's with the FAR adopted in the APA. 4.2. On the contrary, the Ld.DR submitted....
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....see to the AE's under the three segments, for which rollback benefit is sought for. The Income tax Rules provide that, if the International Transactions are same in the year of APA and in the past year than both the parties, assessee and CBDT may agree for applying the agreements contained in APA agreed. 4.5. An APA also provides complete guideline in respect of the international transaction, whose ALP is to be determined by applying appropriate transfer pricing methodology. The roll back provisions provide for application of the same agreement for earlier years is also based on the assumption that: (i) the international transaction is similar in the two years, ii) methodology required for determination of ALP is also similar, (iii) critical assumptions are the same, (iv) there is no change in the law, and (v) required formalities like filing of the return, audit, payment of additional taxes, are also completed. 4.6. We therefore remand the issue back to the Ld.AO/TPO. The Ld.AO/TPO is directed to examine the facts closely and conclude the issue of applicability of APA to the year under consideration in principle. The Ld.AO/TPO is ....
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....as only one segment of activity, namely, "Healthcare Receivable Management". Therefore, the Company is functionally different from the Assessee, engaged in providing captive ITeS. Reliance in regard to the above is placed on: (i) Annual Report of the Company for the relevant AY - Page 33 - 39, page 61 and S. 12 at page 63 of the Compilation. (ii) Arctern Consulting (P.) Ltd. v. ITO, [2022] 137 taxmann.com 69 (Bang. - Trib.) - Para 22 at page 270 of the Compilation. (ii) eClerx Services Ltd. 57.50% Data content management, data analysis and process improvement task, trade support and validation, settlements and clearing, asset servicing, risk management and reconciliation (S. No. 5 at Page 83 of Paper Book dated 06.09.2023). The Company is engaged in provision of diversified activities, including analytic services and data process solutions to its global clients. The Company is not engaged in provision of a simple service of data processing but is engaged in provision of high-end services. Further, the Company operates under a single primary segment, i.e., "data analytics and process outsourcing services". Therefore, the Company cannot be compared with the Assessee....
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....nch of this Tribunal in support of the exclusion of the three comparables the assessee relied on the decision of the coordinate bench of this Tribunal in case of Artern Consulting (p.) Ltd. Vs. ITO reported in (2022) 137 taxmann.com 69, wherein the alleged comparables have been held to be functionally not similar with a captive service provider. 5.6. On the contrary, the Ld.DR opposed the submissions of the Ld.AR. However, he submitted that in the event the APA is to be applied, the margins as adopted in the APA to ITeS segment should be applied 5.7. In rebuttal to the above submissions of the Ld.AR, the Ld.AR submitted that the application of margins adopted under the APA for AY 2010-11 to 2018-19 to ITeS segment would be incorrect, as margins for transfer pricing purposes are to be computed based on current year data. Therefore, the APA has persuasive value only insofar as the methodology and functionality is concerned, nothing further. We have perused the submissions advanced by both sides in light of records placed before us. 5.8. We agree with the Ld.AR that the APA has persuasive value only insofar as the methodology and functionality is concerned, nothing further....
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....(P.) Ltd.v.Dy.CIT [2016] 67 taxmann.com 68 (Bang. Tribunal), 4 of the 5 comparable companies set out in ground No. 5(a) were excluded for the following reasons: "Accentia Technologies Ltd. It was held that Accentia Technologies Ltd. is engaged in diversified activity of medical transcription, medical coding, billing and receivable management. The said company is engaged in the healthcare activity and providing BPO service in the healthcare sector, that too by providing specific services of medical transcription, medical coding, medical billing etc. These activities are quite different from the service of contact centre provided by the assessee to its AE which is purely in the nature of call centre. Therefore, the company Accentia Technologies Ltd. cannot be considered as a functionally comparable company with the services provided by the assessee to its AE. Ecclex Services Ltd. It was held that the company Eclerx Services Ltd. is engaged in diversified activity of providing services including analytic services and data process solutions to its global clients. The service provided by Eclerx Services Ltd., is in various areas including capital market and therefore, ....
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.... for the distribution segment. Pursuant to the directions of the DRP, the Ld.TPO reduced the adjustment under the distribution segment from INR 68,78,21,711/- to INR 26,76,85,095/- by applying PSM instead of RPSM. 6.2. The Ld.AR at this juncture submitted that, in the APA entered into by the assessee for AY 2010-11 to 2018-19, the distribution segment and the ITeS segment have been benchmarked separately and both segments have been agreed to be benchmarked using TNMM as the Most Appropriate Method (running page 131, para 5.2 of the Paper Book dated 06.09.2023). He further submitted that, admittedly the FAR of the Assessee under the distribution segment has remained the same in AY 2009-10 as compared to subsequent years for which the assessee has entered into the APA. Accordingly, it is most humbly prayed that the TPO be directed to apply the TNMM basis profitability of comparables with FAR [appendix 1(b) at running page 148 - 152 of the Paper Book dated 06.09.2023] adopted in the APA, for the year under consideration as well. We have considered the submissions of both sides in light of the records placed before us. 6.3. We note that the DRP has already directed the sepa....
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....Ld. Counsel thus submitted that, the revenue authorities were not justified in rejecting the books of accounts of the assessee which has been duly audited based on conjectures and surmises without appreciating the disclosures made. 4.4 The Ld. Counsel submitted that the assessee reflected the receipts towards AdWord Program from various customers net of the distribution fees payable to GIL, though the TDS is claimed on the gross receipts. The Ld.AO therefore as a first step rejected the books of accounts u/s. 145. He submitted that the same situation arose for A.Y. 2008-09 in assessee's own case in ITA Nos. 374 & 362/Bang/2013 for A.Y. 2008-09 by order dated 31.03.2023. 4.5 The Ld. DR relied on the orders passed by authorities below. 4.6 We have perused the submissions advanced by both sides in the light of records placed before us. Identical issue has been considered by Coordinate Bench of this Tribunal in assessee's own case for A.Y. 2008- 09 (supra) wherein this Tribunal held as under: "18. .......The ld AR during the course of hearing drew our attention to the observations of the coordinate bench of the Tribunal where by virtue of Grounds No. 2 to 4 (....
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....ng/2015, vide order dated 31.07.2023 which has followed the view taken in ITA No. 374/Bang/2013. For sake of convenience, the observation and view taken in ITA No.68/Bang/2015, which is a consolidated order for assessment years 2010-11 to 2015-16 is reproduced as under: "6.1 The Ld. Counsel submitted that assessee had entered into agreement with Google Ireland for distribution of advertisement space under the google's AdWords program in India and as per the agreement, assessee shall pay to Google Ireland a consideration for purchase of such advertisement space under the AdWords at Rs. 1,85,68,92,343/- (for A.Y. 2010-11) which was in the nature of advertisement fees to post the advertisement of the advertisers on the server end by the Gooogle Ireland outside India. The Ld. Counsel submitted that, the assessee has been conducting its business of distribution of advertisement space under the AdWords program on its own account on a principal to principal basis and not as an agent or representative of the Google Ireland. 6.2 He submitted that, the revenue authorities concluded that assessee is a Dependent Agent of Google Ireland in India, and that as the payment made t....
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....dia. It was held that such income is not to be regarded as royalty or FTS. Such tax challenges is addressed by the introduction of EL. Section 165 of the Finance Act, 2016 provides for charge of EL at 6% on consideration for specified services. Section 164(i) of Finance Act, 2016 provides that "specified service" means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf. Thus, online advertisement is now covered under EL. If online advertisement was already covered under definition of royalty, then bringing it as part of EL scheme would not arise." 6.6 The Ld. Counsel submitted that in the aforesaid case, this Tribunal was seized with the identical issue of payments made by assessee to Google Ireland in respect of the Google AdWords program distribution agreement. 6.7 Further, it was submitted that Coordinate Bench of this Tribunal in assessee's own case for A.Y. 2008-09 in ITA Nos. 374 & 362/Bang/2013 (supra) on similar issue on identical facts observed and held as under: "19. No....
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....tivities of such person are limited to those mentioned in paragraph 5 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph; or (b) has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise; or (c) habitually secures orders in the first- mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same control as that enterprise. ........ 8. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, if the activities of such an agent are carried out wholly or almost wholly for the enterprise and the conditions made or imposed between them in their commercial....
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....nd customer service infrastructure. Clause 2.6 that the Assessee would provide after-sales services to advertisers in India. Clause 14 that the Assessee and GIL shall remain independent contractors and nothing in the Distribution Agreement shall be deemed to create any agency, partnership, or joint venture between the Assessee and GIL. It has also been provided in this clause that neither Assessee nor GIL shall have any right or authority to create any obligation on behalf of each other. 23. We further notice that pursuant to the terms of the Distribution Agreement the Assessee entered into contracts with advertisers in India called "Google India Private Limited Advertising Program Terms" and perusal of the sample invoice (page 359 of Paper Book Volume 1) raised by the Assessee on an advertiser shows that the Assessee has raised the invoice and collected payments from the advertiser in its own name and right. It is also noticed that the coordinate bench in assessee's own case found the Assessee to be the distributor of the Google AdWords Program and therefore, the characterization as a distributor would mean that the Assessee is not an agent as per the fi....
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.... (v) Taj TV Ltd. v. DCIT, (2022) 136 taxmann.com 278 (Mum-Trib) (vi) ESS Distribution (Mauritius) SNC et Compaginie v. DDIT, (2022) 145 taxmann.com 267 (Delhi-Trib) (vii) DDIT v. B4U International Holdings Ltd., (2012) 23 taxmann.com 372 (Mum-Trib) 27. In view of the above discussion with respect to the clauses in the Distribution agreement between the assessee and GIL, the invoices raised on advertisers and the relevant Articles of DTAA between India and Ireland, we hold that the Assessee cannot be treated as DAPE of GIL. Accordingly the distribution fees paid by the assessee to GIL is not liable for TDS u/s.195 of the Act and therefore no disallowance u/s.40(a)(i) is warranted. Grounds 5 to 9 is held in favour of the assessee." 6.8 Nothing contrary has been filed by the revenue on this issue distinguishing the above referred observations of this Tribunal in assessee's own case for A.Y. 2008-09 (supra) and the ld. D.R. has relied on orders passed by authorities below. 6.9 Respectfully following the above view, we hold that assessee cannot be treated as depending agent PE of Google Ireland and that no disallowance could be made u....
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....essee to Google Ireland cannot be considered to be Royalty as per para 39 of the said order. The same view has been taken by another decision of Coordinate Bench of this Tribunal in case of assessee in ITA No. 1190/Bang/2014 for A.Ys. 2013-14 to 2015-16 by order dated 15.12.2022. The relevant extract of the said order is reproduced as under: "6.1 With respect to the issue regarding payments made by the assessee to Google Ireland Ltd., being held to be Royalty under the Act read with the Treaty and liability to withhold tax fastened on the assessee, the assessee's representatives fairly conceded before the ld CIT(A) that the issue is covered by CIT(A)'s earlier year order for assessment years 2006-07 to 2012-13. Following his earlier decision, the ld CIT(A) confirmed the action of the AO. 7. Further, the AO has observed that M/s. Google Ireland was not beneficial owner of the amount received from the assessee in relation to royalty amount. The Ld. CIT(A) observed that in relation to characterization of amounts payable to M/s. Google Ireland as royalty by placing reliance on earlier order of the ld. CIT(A) in assessment years 2007-08 to 2012-13 in relation t....
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.... is that Google.com is a search engine developed by Google LLC, USA available freely to the world at large providing information on any subject based on the search made by the user. The link to various websites related to the search are provided in the search result. Additionally, Google LLC, USA has also developed a computerised advertising program known as Google AdWords Program. Google Ireland Ltd (GIL) is the exclusive licensee and principal operator of the computerised advertising program i.e., "Google AdWords Program" for the whole world outside the USA. The Google AdWords program displays advertisements on Google's search engine. It has a separate website in which the advertisers have to agree to certain terms and conditions including the consideration payable for the targeted Advertisements and provide appropriate keywords on searching of which the websites of the advertisers would be displayed on top of the Google search engine with the abbreviation "Ad". For instance, pursuant to the search query "Fresh Flower Delivery", website of "Ferns N Petals" is listed two times among websites of various other businesses. The listing of the website of "Ferns N Petals" at the top....
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....GIL for advertisements uploaded by Advertisers from all around the world including India. Approximately 94% of global advertisements are reviewed by GIL through its automated system located outside India. Remaining global advertisements, which are not successfully reviewed by the automated system, are subjected to a manual review. For carrying out manual review, the balance 6% (approx.) global advertisements are forwarded to one of service centres of GIL's group entities, located in USA, Dublin, China, Korea, Japan, and India. An advertisement in English by an Indian Advertiser may go for manual review to any of these service centres. These service centres carry out the activity of manual review on a cost-plus basis. The assessee also carries out this activity under the ITES segment as per the services agreement dated 1.4.2004 entered into with GIL. The relevant terms and conditions of this agreement are as under: `THIS SERVICES AGREEMENT (''Agreement'') is entered into as of 1st April, 2004 (the "Effective Date''), by and between Google Ireland Limited, a corporation organized under the laws of Ireland ("Ireland'') and having its office....
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....Google Ireland has marked them as such; (ii) Google Ireland, orally or in writing, has advised Google India of their confidential nature; or (iii) due to their character or nature, a reasonable person in a like position and under like circumstances would treat them as secret and confidential. Confidential Information does not include information: (i) that is in the public domain through no fault of the receiving party, (ii) that was previously known by receiving party, as established by written records of the receiving party prior to receipt of such information from the providing party or (iii) that was lawfully obtained by the receiving party from a third party without any obligations of confidentiality to Google Ireland. 1.3 "Derivative works Work" shall mean (i) for copyrightable or copyrighted material, any modification. derivative works work (as defined in 17 USC. §101), translation, abridgment, revision or other form in which such material may be recast, transformed or adapted, (ii) for patentable or patented material, any improvement thereon. and (iii) for material protected by trade secret, any new material derived from such existing trade secret material, inc....
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....Ireland that are required, used or appropriate for the design and development of Products. including the reproduction, use, testing, operation, maintenance and service of such Products. **** **** ***** 2. SERVICES 2.1 Request Google India hereby agrees to perform certain information technology, information technology enabled services and software development services, as requested by Google Ireland from time to time, with respect to Products, utilizing Google Ireland Software Technology and other appropriate technology from Google Ireland or third parties which may be properly used for these purposes. Google Ireland will specify the information technology, information technology enabled services and software development services to be performed, the Products to be worked on or used, the time line for completion and the specific results to be achieved (the Services"). 2.2 Performance. Upon agreement between Google Ireland and Google India as to the Services and completion date for a particular Services project, Google India will perform the Services. Google India agrees to use commercially reasonable efforts to perform the Services in a timely fashion and ....
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.... India shall also promptly make available to Google Ireland all Residuals. If Google India has any rights to Derivative works Works or Software Embodiments that cannot be assigned to Google Ireland under law. Google India hereby waives the enforcement of such rights; and if Google India has any rights which cannot be assigned or waived under law, Google India hereby grants to Google Ireland an exclusive, irrevocable, perpetual, worldwide, transferable, folly paid licence, with rights to sub license and assign, to all such rights. Google India shall enter into agreements with its Representatives sufficient to permit Google India to make the foregoing grant of rights. ****** ****** ***** 6. CONFIDENTIAL INFORMATION 6.1 Access and Use of Confidential Information. During the course of performance of this Agreement, Google Ireland will disclose certain Confidential Information to Google India solely to permit Google India to perform its obligations under this Agreement. Except as otherwise provided in this Agreement, Google India agrees that such Confidential Information shall be kept secret by Google India during the term of this agreement and after the expir....
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....ever with respect to the foregoing.' 16. Prior to December 2005, an Indian Advertiser could get into a contract with GIL only, for purchasing online advertisement space. However, to accommodate Indian Advertiser(s) desirous to pay in Indian Rupees instead of foreign currency, GIL entered into the Google AdWords Program Distribution Agreement dated 12.12.2005 with the-assessee, whereunder the assessee was appointed as a non- exclusive distributor of online advertisement space in India In terms thereof, the assessee set up its "Distribution Segment" for carrying out purchase and re-sale of online advertisement space to Indian Advertisers. However, Indian Advertisers who were willing to pay in foreign currency, continued to transact directly with GIL. The Google AdWords Program and its features remains the same whether the Advertiser in India purchases online advertisement space from GIL or its authorised distributor i.e., the assessee. The only difference is where Indian Advertiser purchases from the assessee, it pays in INR whereas where Indian advertiser purchases from GIL, it pays in foreign currency. 17. In a case where the assessee is involved in purchase a....
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....ess located within the Territory (as defined herein), where principal place of business is determined by the place of an entity's registration. 1.2 ''AdWords Program" means the advertising program currently offered by Google under the name ''AdWords.'' 1.3 "Brand Features" means the trade names. trademarks, service marks, logos, domain names, and other distinctive brand features of each party, respectively, as secured by such party from time to time. 1.4 "Designated Contact" means those contacts designated by each party as the point of contact or contacts for a particular function area related to this Agreement. 1.5 "Google Brand Features" means the Google trade names, trademarks, service marks, logos, domain names, and other distinctive brand features, with some but not all examples at "http://www.google.comipermissionsltrademarks. html" (or such other URL that Google may provide from time to time), and such other trade names, trademarks, service marks, logos, domain names, or other distinctive brand features that Google may provide to Distributor for use solely under this Agreement. 1.6 "Intellectual Property Rights"....
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.... accordance with this Agreement. Distributor will distribute AdWords Program in accordance with the training provided by Google. Failure to do so would constitute a material breach of this Agreement and shall be grounds for termination under section 9.3. 2.3 AdWords Program Sign Up Process. Distributor shall be responsible for uploading all Advertiser information that is required by Google for participation in the AdWords Program. 2.4 Licences; Approvals. Distributor shall be responsible for obtaining all licences and permits and for satisfying all formalities as may be required to enter into this Agreement and to perform its obligations in accordance with then- prevailing laws and regulations, including without limitation those necessary to enable Distributor to make payments to Google in US dollars. Distributor will promptly secure all governmental approvals as may be required in the Territory or performance of its obligations under this Agreement. 2.5 Compliance with United States and Other Applicable Law; Conduct of Business. Distributor will comply with all United States and local laws and regulations applicable to the distributor of the goods and se....
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....le Brand Features solely for the purpose of Distributor's marketing and distribution of AdWords Program under the terms and subject to the conditions set forth in this Agreement. Notwithstanding the foregoing, Distributor will submit all materials of any kind containing the Brand Features) to Google for written approval prior to release to the public. Furthermore, Distributor agrees to adhere to Google's then- current Brand Features use guidelines, and any content referenced or included therein, which may be found at the following URL: http://www.google.comlpermissionslguidelines.ht ml (or such other URL that Google may provide from time to time) and to such other guidelines or restrictions provided by Google in writing to Distributor in connection herewith. Except as set forth in this Agreement, Distributor shall not acquire any right, title or interest in or to the Google Brand Features. All use by Google of Distributor Brand features (including any goodwill associated therewith shall inure to the benefit of Distributor and all use by Distributor of Go ogle Brand Features (including any goodwill associated therewith) shall inure to the benefit of Google. No party shall ch....
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....eatures shall cease immediately, (ii) each party shall promptly return to the other party, or destroy and certify the destruction of all Confidential Information as defined in the NDA and Section 7 of this Agreement) of the other party, and (iii) except for a termination pursuant to Section 9.2 or Section 9.3 above. Google will continue to serve advertisements as provided in this Agreement up to the earlier date to occur of (x) the date that the services provided by Google exhaust any amounts prepaid by Distributor, or (y) the date that is thirty (30) days after expiration or termination of the Agreement. Termination or expiration of this Agreement. in part or in whole. shall not limit either party from pursuing other remedies available to it, nor shall Distributor be relieved of its obligation to pay all charges that have accrued or are otherwise owed under this Agreement. Termination of this Agreement does not prevent Distributor from participating in the AdWords Program pursuant to the general terms and conditions made publicly available by Google from time to time in its sole discretion. ***** ***** ***** EXHIBIT C Service Level Agreement Distributor shall be solely re....
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....#39;Party'' and collectively referred to as the "Parties". The Parties wish to exchange Confidential Information (as defined below in Section 2) for the following purpose(s): a) to evaluate whether to enter into a contemplated business transaction; and b) if the Parties enter into an agreement related to such business transaction, to fulfill each Party's confidentiality obligations to the extent the terms set forth below are incorporated therein (the ''Purpose''). The Parties have entered into this Agreement to protect the confidentiality of information in accordance with the following terms: 1. The Effective Date of this Agreement is December 12, 2005. 2. In connection with the Purpose, a Party may disclose certain information it considers confidential and/or proprietary ("Confidential Information '') to the other Party including, but not limited to, tangible, intangible, visual, electronic, present, or future information such as: (a) trade secrets; (b) financial information, including pricing; (c) technical information, including research, development, procedures, algorithms, data, designs. and know- how; (d) business informat....
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....equired to be disclosed by operation of law, court order or other governmental demand ("Process''); provided that (i) the Recipient shall immediately notify the Discloser of such Process; and (ii) the Recipient shall not produce or disclose Confidential Information in response to the Process unless the Discloser has: (a) requested protection from the legal or governmental authority requiring the Process and such request has been denied, (b) consented in writing to the production or disclosure of the Confidential Information in response to the Process, or (c) taken no action to protect its interest in the Confidential Information within 14 business days after receipt of notice from the Recipient of its obligation to produce or disclose confidential information in response to the Process ***** ***** ******* 11. No Party acquires any intellectual property rights under II Agreement (including, but not limited to, patent, copyright, and trademark rights) except the limited rights necessary to carry out the Purpose as forth in this Agreement. 0. Each Party acknowledges that damages for improper disclosure Confidential Information may be irrepar....
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....er for keywords or settings discrepancies if Customer can certify to Google by its contemporaneous documental (evidence that Google posted keywords or settings other than those requested by Customer. The account (as modified by Customer, or if unmodified, as initially posted) will be deemed approved by Customer 72 hours after it initially posts. Terms of Payment. If Google, at any time, deems itself insecure with respect to Customer's ability to meet its financial obligations under this SA, Google shall have the right to require pre- payment of the total amount due for the SA in advance of the Target Start Date or as otherwise requested by Google. Customer must remit all payments under this SA to Google by the due date indicated on the Invoice(s). In the event of nonpayment, Google reserves the right to immediately terminate this SA upon written notice to Customer and immediately suspend the entire Customer account. Late payments are subject to interest payments as set forth in the Terms and Conditions. Methods of Billing: Monthly Invoicing: Customer will be billed at the end of the month, based on the actual number of clicks or other billing methods Customer ....
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....ed by and between the parties (together the "Agreement"). Google and Customer hereby agree and acknowledge: 1. Policies. Program use is subject to all applicable Google and Partner ad specification requirements and policies, including without limitation the Editorial Guidelines (adwords google.com/select/guidelines.html) Google Privacy Policy (www.google.com/privacy.html) and Trademark Guidelines (www.google.com/permissions/guidelines.html), (collectively, "Policies"). Policies may be modified any time. Customer shall direct only to Google communications regarding Customer ads on Partner Properties. Some Program features are identified as "Beta," "Ad Experiment," or otherwise unsupported ("Beta Features"). To the fullest extent permitted by law, Beta Features are provided "as is" and at Customer's option and risk. Customer shall not disclose to any third party any information from Beta Features, existence of non-public Beta Features or access to Beta Features. Google may, at its sole discretion and without any prior consent from the Customer, modify ads to comply with any Policies. 2. The Program: Customer is solely responsible for all: (a) ad targeting option....
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....duction. Cancelled advertisements may be published despite cancellation if cancellation of those ads occurs after any applicable commitment date as set forth in advance by the Partner or Google in which case Customer must pay for those ads. Google may cancel immediately any 10, any of its advertising Programs, or these Terms at any time with notice, in which case Customer will be responsible for any ads already run. Google may modify any of its advertising Programs at any time without liability. Sections I, 2, 3,5, 6, 7, 8, and 9 will survive any expiration or termination of this Agreement. 4. Prohibited Uses; License Grant; Representations and Warranties. Customer shall not, and shall not authorize any party to: (a) generate automated, fraudulent or otherwise invalid impressions, inquiries, conversions, clicks or other actions; (b) use any automated means or form of scraping or data extraction to access, query or otherwise collect Google advertising related information from any Adwords website or property except as expressly permitted by Google; or (c) advertise anything illegal or engage in any illegal or fraudulent business practice. Customer represents and warrants tha....
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....GENCE) OR ANY OTHER LEGAL THEORY, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY; AND (b) EACH PARTY'S AGGREGATE LIABILITY TO THE OTHER IS LIMITED TO AMOUNTS PAID OR PAYABLE TO GOOGLE BY CUSTOMER FOR THE AD GIVING RISE TO THE CLAIM. Except for payment obligations, neither party is liable for failure or delay resulting from a condition beyond the reasonable control of the party, including but not limited to acts of God, government, terrorism, natural disaster, labor conditions and power failures. 6. Agency. Customer represents and warrants that (a) it is authorized to act on behalf of and has bound to this Agreement any third party for which Customer advertises (a "Principal'') (b) as between Principals and Customer, the Principal owns any rights to Program information in connection with those advertisements, and (c) Customer shall not disclose Principal's Program information to any other party without Principal's consent. 7. Payment Customer shall be responsible for all charges up to the amount of each 10, or as set in an online account, and shall pay all charges in ....
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....perty, misrepresentation or defamation. 9. Arbitration. The parties agree that they will try in good faith to settle within thirty (30) days any dispute, controversy or claim arising out of relating to or in connection with this Agreement ("Dispute''). If the Dispute is not resolved within thirty (30) days after such Dispute arose, such Dispute must be referred to and finally resolved by arbitration, to which the Parties hereto expressly agree and submit. The arbitration will be submitted to the International Centre for Dispute Resolution of the American Arbitration Association ("AAA") and conducted in accordance with the Commercial Arbitration Rules of the AAA in force as of the date of this Agreement ("Rules''). Pre-hearing information exchange shall be limited to the reasonable production of relevant, non- privileged documents and carried out expeditiously. There will be one arbitrator selected by mutual agreement of the Parties. The arbitrator will not act as amiable compositeur or ex aequo et bono. It is the intent of the parties that, barring extraordinary circumstances, arbitration proceedings will be concluded within 60 days from the date the arbitr....
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....tions of these Terms to any third party, except to its professional advisors under a strict duty of confidentiality or as necessary to comply with a government law, rule or regulation. Customer may grant approvals, permissions, extensions and consents by email, but any modifications by Customer to the Agreement must be made in a writing executed by both parties. Any notices to Google must be sent to Google India Pvt. Ltd., No.3, RMZ Infinity - Tower E, Old Madras Road, 4th Floor, Bangalore, 560016, India with a copy to Legal Department, via confirmed facsimile, with a copy sent via first class or air mail or overnight courier, and are deemed given upon receipt. Notice to Customer may be effected by sending email to the email address specified in Customer's account, or by posting a message to Customer's account interface, and is deemed received when sent (for email) or no more than 15 days after having been posted (for messages in Customer's account interface). A waiver of any default is not a waiver of any subsequent default. Unenforceable provisions will be modified 10 reflect the parties' intention and only to the extent necessary to make them enforceable, and rem....
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....DTAA". Article 12 of the aforesaid treaty defining "royalties" would alone be relevant to determine taxability under the DTAA, as it is more beneficial to the assessee as compared to section 9(1)(vi) of the Income-tax Act, as construed by the High Court. Here again, section 90(2) of the Income- tax Act, read with explanation 4 thereof has not been properly appreciated." 22. Thus, the definition of the term "royalty" in Article 12(3) of the India - Ireland DT AA override the definition of "royalty" as provided in Explanation 2 to section 9(l)(vi) of the Act by virtue of section 90(2). Therefore, the definition of the term "royalty" under the India - Ireland DTAA being more beneficial to the assessee must only be considered in these appeals. The findings of the AO and CIT(A) as regards the characterisation of the payments to Google Ireland as 'Royalty' under section 9(l)(vi) of the Act is therefore not relevant and consequently correctness of these findings need not be adjudicated in these appeals. Similarly, we do not think it is necessary to decide whether the services agreement and distribution agreement are interlinked or complementary to each other. ITES service....
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....the assessee or not? In order to attract definition of 'Royalty', there has to be use or right to use, inter alia, any copyright. The issue as to whether usage of computer software tantamounts to royalty, is now resolved by the Supreme Court decision in the case of Engineering Analysis Centre of Excellence Private Limited (supra). The Supreme Court grouped the various appeals on the aspect of royalty issue on software payments into four categories as under:- Category 1: Computer software purchased by an end-user, resident in India, from a foreign non- resident supplier/manufacturer. Category 2: Purchase of computer software by resident Indian companies that act as distributors/resellers, from foreign non-resident suppliers for the purpose reselling the same to resident Indian users. Category 3: Purchase of software by foreign non- resident distributor from a foreign non-resident supplier for the purpose of reselling the same to Indian distributors or end-users. Category 4: Computer software affixed onto a hardware and sold as an integrated unit/equipment by foreign non-resident suppliers to Indian distributors or end-users. 25. T....
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....***** ****** ....... 97. When, under a non- exclusive licence, an end-user gets the right to use computer software in the form of a CD, the end- user only receives a right to use the software and nothing more. The end-user does not get any of the rights that the owner continues to retain under section 14(b) of the Copyright Act read with sub-section (a)(i)-(vii) thereof Thus, the conclusion that when computer software is licensed for use under an EULA, what is also licensed is the right to use the copyright embedded therein, is wholly incorrect. The licence for the use of a product under an EULA cannot be construed as the licence spoken of in section 30 of the Copyright Act, as such EULA only imposes restrictive conditions upon the end- user and does not part with any interest relatable to any rights mentioned in sections 14(a) and 14(b) of the Copyright Act. ***** ******** ****** 100. Also, any ruling on the more expansive language contained in the explanations to section 9(1)(vi) of the Income- tax Act would have to be ignored if it is wider and less beneficial to the assessee than the definition contained in the DTAA, as per section 90(2) of the Income....
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....nership of the physical substance, in which copyright subsists, gives the purchaser the right to do with it whatever he pleases, except the right to reproduce the same and issue it to the public, unless such copies are already in circulation, and the other acts mentioned in section 14 of the Copyright Act. (iv) A licence from a copyright owner, conferring no proprietary interest on the licensee, does not entail parting with any copyright, and is different from a licence issued under section 30 of the Copyright Act, which is a licence which grants the licensee an interest in the rights mentioned in section 14(a) and 14(b) of the Copyright Act. Where the core of a transaction is to authorize the end-user to have access to and make use of the "licensed" computer software product over which the licensee has no exclusive rights, no copyright is parted with and consequently, no infringement takes place, as is recognized by section 52(l)(aa) of the Copyright Act. It makes no difference whether the end-user is enabled to use computer software that is customised to its specifications or otherwise. (iii) A non-exclusive, non-transferable licence, merely enabling the use of ....
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....and in compliance with standards, provided by Google. All Advertisers shall be instructed by Distributor to contact Distributor directly for support, and not to communicate directly with Google Ireland. Distributor agrees that it shall provide minimum levels of service like Business hours phone support to all Advertisers, E-mail queries from Advertisers shall be responded to within one (l) business day with immediate resolution of any issues when possible. It was decided that the issues that cannot immediately be resolved by Distributor based on training and procedures provided under the Agreement must be communicated promptly to Google Ireland by Distributor / assessee, and Google Ireland will assist assessee / Distributor in determining the best solution. It was also agreed that the distributor agrees that Google Ireland will have the right, to review samples of communications sent to Advertisers to assess the quality of responses and modify communications accordingly. Google Ireland shall also have the right to send questionnaires to Distributor's customers to ensure that Distributor is providing an adequate level of service. 28. As per the standard Advertising prog....
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.... CIT & Anr. (supra), mere use of or right to use a computer program without any transfer of underlying copyright in it as per section 14(a)/(b) or section 30 of the Copyright Act, 1957 will not be satisfying the definition of Royalty under the Act / DTAA. Similarly, use of confidential information, software technology, training documents and others are all 'literary work' with copyrights in it owned by the foreign entity and there was no transfer or license of copyrights in favour of the assessee company. Hence, the impugned payments cannot be characterised as 'Royalty' under the DTAA. 31. The lower authorities have held that the assessee has been granted the use of or right to use trademarks, other brand features and the process owned by Google Ireland for the purpose of distribution of Adwords program and consequently the sums payable to Google Ireland are royalty. As per Article 12 of India - Ireland DTAA, consideration for the use of or right to use any patent, trade mark, design or model, plan, secret formula or process is regarded as royalty. In the present case, as per the distribution agreement, "Google Brand Features" means the Google trade names, ....
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....ew in holding that the remitted amount is royalty on different grounds. The revenue has not challenged the said finding of CIT(A). Hence, the impugned payments cannot be regarded as made for 'use of or right to use industrial, commercial or scientific equipment'. The remaining portion of definition of 'Royalty' under the India - Ireland DT AA is consideration for information concerning industrial, commercial or scientific experience. The AO has not characterised the impugned payments as a consideration for the above. In any case, CIT(A) has given a finding that it cannot be said that any kind of technical knowhow has been transferred to the assessee company. This has not been challenged by the revenue. 33. Thus on an overall analysis of the entire facts on record, we hold that the impugned payments cannot be regarded as royalty under the India - Ireland DTAA. It is true that the Google Adword program was commercially and profitably exploited in a commercial sense and profitable manner in India to generate revenues from Indian customers or advertisers. This is the business or commercial aspect of the transaction. However, the stand of the lower authorities t....
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....d payments to be fees for technical services ("FTS"), the CIT(A) held them to be royalty. The Tribunal relied on the decision in Yahoo (supra) to delete the disallowance. It was also observed by the Tribunal that the said payments were business profits, which were not taxable in India, since GIL did not have a PE in India. (iii) Right Florists (supra): Right Florist was a florist who used Google Search Engine for online advertising, to generate more business for itself. In this case again, the AO had disallowed the payments made by Right Florist for online advertising under section 40(a)(i) of the Act. However, the CIT(A) reversed the said decision on the ground that none of the recipients of the payments had a PE in India. The Tribunal, in Department's appeal, upheld the order of the CIT(A), while observing that the decisions in Yahoo (supra) and Pinstorm (supra) were authorities in support of the proposition that payment by the Indian arm of a foreign owner of search engine portal, in connection with online advertising, is not in the nature of royalty as per section 9(1)(vi) of the Act. In this decision, the Tribunal also discussed the modalities involved in the onli....
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....CIT(A) and held the payments in question to be neither royalty, nor FTS. (viii) Matrimony.com (supra): Matrimony.com in this case, made payments to Facebook Ireland Ltd. for online advertising. The AO in this case as well, disallowed the said payments under section 40(a)(i) of the Act, which action was upheld by the CIT(A). The Tribunal followed the decision in Urban Ladder (supra), while deleting the said disallowance. (ix) ESPN Digital Media (supra): ESPN India in this case, entered into a re-seller agreement with ESPN UK, for the resale of online advertisement space. In terms thereof, ESPN India purchased online advertisement space for re-sale to Indian advertisers. For this purchase, it made payments to ESPN UK, which were characterised as royalty by the AO. The CIT(A) upheld the order of the AO. The Tribunal, in second appeal, set aside the order of the CIT(A), while observing that ESPN India was merely making payment under the re- seller agreement towards purchase of online advertisement space. It was also observed that a website is not a tangible property and is certainly not a high-tech equipment. It was also observed that the reliance of the AO and CIT(A)....
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....t under Article 7, and not Article 12 of the relevant DTAA. 37. Therefore, in terms of the international guidance as stated herein, the position regarding taxability of receipts from sale of online advertisement space is clear. Unless the non- resident, who is engaged in sale of online advertisement space, has a PE in India, no portion of receipts earned by it from sale of online advertisement space in India can be brought to tax in India as Act read with the relevant DTAA. 38. The above view is also supported by insertion of provisions related to Equalisation Levy (EL) by Finance Act, 2016. The root for the emergence of the EL can be traced to the dynamic business models that have the ability to transcend the link between an income producing activity and a specific location since these business are carried in the cyber place. The PE definition presently is based upon the physical presence criteria. The new business models also created challenges in characterizing the nature of payment - whether the payment is for services or for any IPR and hence royalty or whether it represents pure business profits. Various ITAT decisions, as discussed above, have held that inc....
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....ty of income received from GIPL is concerned we notice that in the hands of GIPL, the AO had show caused why the payment made by it to GIL M/s. Google Ireland Ltd. (assessee in this case) is not in the nature of royalty. The GIPL vide its reply dated 15.02.2013 explained that the payment made by it to GIL is in the nature of advertisement fees and not royalty under Act and DTAA. The AO, however, rejected the contentions of the GIPL and passed order under Sections 201 & 201(1A) of the Act dated 22.02.2013 for assessment years 2007-08 to 2012- 13. For assessment years 2007-08 and 2008-09, the Tribunal disposed off the case on 10.08.2022 on the short ground that order passed under Section 201 of the Act for AY 2007-08 and 2008-09 are barred by limitation (ITA Nos. 1511 & 1512/Bang/2013 order dated 10.08.2022). As regards assessment years 2009-10 to 2012-13 in IT(TP)A 1513 to 1516/Bang/2013 the issue was decided in favour of GIPL by the Tribunal by holding that the impugned payment made by it to GIL cannot be characterised as royalty under Act or DTAA. The relevant findings of the Tribunal in the case of payer, i.e. GIPL reads as follows: - "13. We have heard....
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....arch engine with the abbreviation "Ad". For instance, pursuant to the search query "Fresh Flower Delivery", website of "Ferns N Petals" is listed two times among websites of various other businesses. The listing of the website of "Ferns N Petals" at the top of the list is a sponsored link accompanied by a small abbreviation "Ad", and the other listing is an organic search result as it does not have any such abbreviation. [Page 318 of paper book 1] This is because, "Ferns N Petals" utilised the "Google AdWords Program" to advertise its business on the Google Search Engine. The targeting of advertisement is achieved by using appropriate keywords, which can be selected only by the Advertiser. The Google AdWords Program contains a glossary of keywords together with helpful suggestions for the Advertiser to select appropriate keywords for his targeted advertisement. Google AdWords Program also contains a number of computer commands, by which the proposed Advertiser can achieve a more focused and particularised targeting, such as geographical or area targeting (advertisement to be shown only in a particular area, say the State of Karnataka) or period targeting (advertisement to be shown ....
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....greement are as under: `THIS SERVICES AGREEMENT (''Agreement'') is entered into as of 1st April, 2004 (the "Effective Date''), by and between Google Ireland Limited, a corporation organized under the laws of Ireland ("Ireland'') and having its office at Seagrave House, 19120 Earlsfort Terrace, Dublin 02, Ireland, and Google Online India Private Limited, a company incorporated under the provisions of the Companies Act, 1956 and having its registered office at Prestige Sigma, 1st Floor, NO.3 Vittal Mallya Road, Bangalore 560001, India ('Go ogle India') and having a branch office at RMZ Future, Block A, 4'" Floor Plot No. 14, Road No.2, Hitec City Layout, Madhapur village, Ranga Reddy District, Hyderabad 500081, Andhra Pradesh. A. WHEREAS, Google Ireland is in the business of developing, licensing, M/s. Google Ireland Ltd. selling, marketing and supporting certain Internet search, advertising system and information organization and management technology products and services to provide information, advertising, search and related services via the Internet, corporate intranets and private networks (collectively, 'Product....
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....sect;101), translation, abridgment, revision or other form in which such material may be recast, transformed or adapted, (ii) for patentable or patented material, any improvement thereon. and (iii) for material protected by trade secret, any new material derived from such existing trade secret material, including new material which may be protected to copyright, patent and/or trade secret. M/s. Google Ireland Ltd. 1.4 "Documentation" shall mean any and all information, written or otherwise, provided by Goode Ireland to Google India describing the Intellectual Property or the Products and any updated, improved or modified version(s) of such materials including information contained in published written materials, on magnetic media or communicated by electronic means. 1.5 "intellectual Property' shall mean all intellectual, proprietary, and/or intangible property rights constituting, embodied in. pertaining to, used in or with respect to the business of Google Ireland, the Products, or the provision of related services and all tangible embodiments hereof, wherever located, including but not limited to the following: (i) all trademarks, trade names, serv....
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....ime line for completion and the specific results to be achieved (the Services"). 2.2 Performance. Upon agreement between Google Ireland and Google India as to the Services and completion date for a particular Services project, Google India will perform the Services. Google India agrees to use commercially reasonable efforts to perform the Services in a timely fashion and as described to it by Google Ireland. Google India may not subcontract work under this Agreement unless specifically and to the extent set forth in the Services. Google India shall, at all times, be responsible for work done by its subcontractors within the scope of this Agreement as it is for work done by its own employees. At the option of Google Ireland, Google India shall make Goggle Ireland a party to the agreements that Google India may execute with its subcontractors and Google Ireland shall have the right to pre-approve the terms and conditions of such agreements **** **** ****** 5. OWNERSHIP 5.1 Intellectual Property. Google India acknowledges the exclusive right. title and interest of Google Ireland and its licensors and/or suppliers in and to any and all Confidential Information, Intell....
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....l Information. During the course of performance of this Agreement, Google Ireland will disclose certain Confidential Information to Google India solely to permit Google India to perform its obligations under this Agreement. Except as otherwise provided in this Agreement, Google India agrees that such Confidential Information shall be kept secret by Google India during the term of this agreement and after the expiration hereof Google India shall refrain from using or exploiting any and all Confidential Information for any purposes or activities other than those contemplated in this Agreement. 6.2 Agreement Not to Disclose Confidential Information. Google India shall not disclose or facilitate disclosure of such Confidential Information to any Person without the prior consent of Google Ireland, except to its Representatives, and then only to the extent necessary for the performance of the activities contemplated by this Agreement. Google India shall cause each of its Representatives with access to the Confidential Information to enter into a nondisclosure agreement in a form approved by Google Ireland. Google India shall use the highest standard of care currently employed by any deve....
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....ct directly with GIL. The Google AdWords Program and its features remains the same whether the Advertiser in India purchases online advertisement space from GIL or its authorised distributor i.e., the assessee. The only difference is where Indian Advertiser purchases from the assessee, it pays in INR whereas where Indian advertiser purchases from GIL, it pays in foreign currency. 17. In a case where the assessee is involved in purchase and re- sale of online advertisement space to Advertiser and if such Advertiser finds it difficult to use Google AdWords Program, he can get guidance and assistance from the employees of the assessee working under the Distribution Segment. However, substantial portion of Indian Advertisers in India prepare their draft advertisements themselves, with the aid of the Google AdWords Program itself. All this is completely free and is open to any member of the public. No payment is made for any use of the Google AdWords Program. In fact, even after using the Google AdWords Program and formulating / displaying an online advertisement, no payment is made by the Advertiser, unless the Ad is clicked by an end-user. Relevant terms and conditions of the....
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....ns the Google trade names, trademarks, service marks, logos, domain names, and other distinctive brand features, with some but not all examples at "http://www.google. comipermissionsltrademarks.html" (or such other URL that Google may provide from time to time), and such other trade names, trademarks, service marks, logos, domain names, or other distinctive brand features that Google may provide to Distributor for use solely under this Agreement. 1.6 "Intellectual Property Rights" shall mean any and all rights existing from time to time under patent law, copyright law, semiconductor chip protection law, moral rights law, trade secret law, trademark law, unfair M/s. Google Ireland Ltd. competition law, publicity rights law, privacy rights law, and any and all other proprietary rights, as well as, any and all applications, renewals, extensions, restorations and re- instatements thereof now or hereafter in force and effect worldwide. 1.7 "Keywords" means words chosen by an advertiser through the AdWords Program for a given set of one or more advertisements that are used to target those advertisements to potential customers. 1.10 "User Data" means all data and informa....
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....ng laws and regulations, including without limitation those necessary to enable Distributor to make payments to Google in US dollars. Distributor will promptly secure all governmental approvals as M/s. Google Ireland Ltd. may be required in the Territory or performance of its obligations under this Agreement. 2.5 Compliance with United States and Other Applicable Law; Conduct of Business. Distributor will comply with all United States and local laws and regulations applicable to the distributor of the goods and services. including but not limited to the Foreign Corrupt Practices Act and US regulations of international boycotts. Distributor shall (a) conduct business in a manner that reflects favorably at all times on the AdWords Program and on Google's goodwill and reputation, and (b) agrees to adhere to the minimum levels of service as specified in Exhibit C. Breach of this Section 2. 5 will constitute a material breach of this Agreement. 2. 6 After-Sales Support. Distributor will provide after-sales services to Advertisers in accordance with the broad instructions, training and standards of Google. 3. Google Obligations. 3.1 Advert....
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....ide from time to time) and to such other guidelines or restrictions provided by Google in writing to Distributor in connection herewith. Except as set forth in this Agreement, Distributor shall not acquire any right, title or interest in or to the Google Brand Features. All use by Google of Distributor Brand features (including any goodwill associated therewith shall inure to the benefit of Distributor and all use by Distributor of Go ogle Brand Features (including any goodwill associated therewith) shall inure to the benefit of Google. No party shall challenge or assist others to challenge the Brand Features of the other party (except to protect such party's rights with respect to its own Brand Features) or the registration thereof by the other party, nor shall either party attempt to register any Brand Features or domain names that are confusingly similar to those of the other party. 7. Confidentiality; Limitation on Public Announcements. Disclosure of confidential and/or proprietary information disclosed hereunder, including the User Data (including any aggregated User Data), the existence and content of this Agreement, and any information provided pursuant to this ....
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....ermination or expiration of this Agreement. in part or in whole. shall not limit either party from pursuing other remedies available to it, nor shall Distributor be relieved of its obligation to pay all charges that have accrued or are otherwise owed under this Agreement. Termination of this Agreement does not prevent Distributor from participating in the AdWords Program pursuant to the general terms and conditions made publicly available by Google from time to time in its sole discretion. ***** ***** ***** EXHIBIT C Service Level Agreement Distributor shall be solely responsible for providing all customer services to Advertisers. according to the procedures, and in compliance with standards, provided by Google. All Advertisers shall be instructed by Distributor to contact Distributor directly for support and not to communicate directly with Google. Distributor agrees that it shall provide at least the following minimum levels of service: Business hours phone support to all Advertisers. E-mail queries from Advertisers shall be responded to within one (1) business day with immediate resolution of any issues when possible. Issues that cann....
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....ntiality of information in accordance with the following terms: 1. The Effective Date of this Agreement is December 12, 2005. 2. In connection with the Purpose, a Party may disclose certain information it considers confidential and/or proprietary ("Confidential Information '') to the other Party including, but not limited to, tangible, intangible, visual, electronic, present, or future information such as: (a) trade secrets; (b) financial information, including pricing; (c) technical information, including research, development, procedures, algorithms, data, designs. and know-how; (d) business information, including operations, planning, marketing interests, and products; (e) the terms of any agreement entered into between the Parties and the discussions, negotiations and proposals related thereto; and (f) information acquired during any facilities tours. 3. The Party receiving Confidential Information (a "Recipient'') will only have a duty to protect Confidential Information disclosed to it by the other Party ("Discloser''): (a) if it is clearly and conspicuously marked as "confidential" or with a similar designation; (b) if it is....
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....ial Information in response to the Process, or (c) taken no action to protect its interest in the Confidential Information within 14 business days after receipt of notice from the Recipient of its obligation to produce or disclose confidential information in response to the Process ***** ***** ******* 11. No Party acquires any intellectual property rights under II Agreement (including, but not limited to, patent, copyright, and trademark rights) except the limited rights necessary to carry out the Purpose as forth in this Agreement. 12. Each Party acknowledges that damages for improper disclosure Confidential Information may be irreparable; therefore, the injured Party is entitled to seek equitable relief, including injunction and preliminary injunction, in addition to all other remedies available to it. 18. The standard agreement entered into between the assessee and the advertisers is as under:- Google Advertising Agreement Customer Invoicing address Advertising third party Name and address Advertiser Advertising third party M/s. Google Ireland Ltd. Customer will promptly n....
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....ogle shall have the right to require pre-payment of the total amount due for the SA in advance of the Target Start Date or as otherwise requested by Google. Customer must remit all payments under this SA to Google by the due date indicated on the Invoice(s). In the event of nonpayment, Google reserves the right to immediately terminate this SA upon written notice to Customer and immediately suspend the entire Customer account. Late payments are subject to interest payments as set forth in the Terms and Conditions. Methods of Billing: Monthly Invoicing: Customer will be billed at the end of the month, based on the actual number of clicks or other billing methods Customer may choose to participate in as described in the FAQ (e.g. cost per impression programs). Customer's credit must first be approved by Google in order for this billing method to apply. Prepayment: Customer will pay the total agreement budget prior to any campaign launch. Acceptance and terms of prepayment are at Google's sole discretion. Prepayment does not obligate Google to deliver any Ad Words ads notwithstanding acceptance of prepayment by Google. Unused portions of prepayments ....
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.... any time. Customer shall direct only to Google communications regarding Customer ads on Partner Properties. Some Program features are identified as "Beta," "Ad Experiment," or otherwise unsupported ("Beta Features"). To the fullest extent permitted by law, Beta Features are provided "as is" and at Customer's option and risk. Customer shall not disclose to any third party any information from Beta Features, existence of non-public Beta Features or access to Beta Features. Google may, at its sole discretion and without any prior consent from the Customer, modify ads to comply with any Policies. 2. The Program: Customer is solely responsible for all: (a) ad targeting options and keywords (collectively "Targets") and all ad content, ad information, and ad URLs ("Creative"), whether generated by or for Customer; and (b) web sites. services and landing pages which Creative links or directs viewers to, and advertised services and products (collectively "Services"). Customer shall protect any Customer passwords and takes full responsibility for Customer's own, and third party, use of M/s. Google Ireland Ltd. any Customer accounts. Ads may be placed on (y) any con....
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....any time without liability. Sections I, 2, 3,5, 6, 7, 8, and 9 will survive any expiration or termination of this Agreement. 4. Prohibited Uses; License Grant; Representations and Warranties. Customer shall not, and shall not authorize any party to: (a) generate automated, fraudulent or otherwise invalid impressions, inquiries, conversions, clicks or other actions; (b) use any automated means or form of scraping or data extraction to access, query or otherwise collect Google advertising related information from any Adwords website or property except as expressly permitted by Google; or (c) advertise anything illegal or engage in any illegal or fraudulent business practice. Customer represents and warrants that it holds and hereby grants Google and Partners all rights (including without limitation any copyright, trademark, patent. publicity or other rights) in Creative. Services and M/s. Google Ireland Ltd. Targets needed for Google and Partner to operate Google's advertising programs for Customer (including without limitation any rights needed to host, cache, route, transmit, store, copy, modify, distribute, perform. display, reformat. excerpt, analyze, and cr....
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....he reasonable control of the party, including but not limited to acts of God, government, terrorism, natural disaster, labor conditions and power failures. 6. Agency. Customer represents and warrants that (a) it is authorized to act on behalf of and has bound to this Agreement any third party for which Customer advertises (a "Principal'') (b) as between Principals and Customer, the Principal owns any rights to Program information in M/s. Google Ireland Ltd. connection with those advertisements, and (c) Customer shall not disclose Principal's Program information to any other party without Principal's consent. 7. Payment Customer shall be responsible for all charges up to the amount of each 10, or as set in an online account, and shall pay all charges in Indian Rupees or in such other currency as agreed to in writing by the parties. Unless agreed to by the parties in writing, Customer shall pay all charges in accordance with the applicable 10 or Program FAQ. Late payments bear interest at the rate of 1.5% per month (or the highest rate permitted by law, if less). Charges are exclusive of taxes, cesses or other applicable levies. Customer is responsib....
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.... by arbitration, to which the Parties hereto expressly agree and submit. The arbitration will be submitted to the International Centre for Dispute Resolution of the American Arbitration Association ("AAA") and conducted in accordance M/s. Google Ireland Ltd. with the Commercial Arbitration Rules of the AAA in force as of the date of this Agreement ("Rules''). Pre-hearing information exchange shall be limited to the reasonable production of relevant, non- privileged documents and carried out expeditiously. There will be one arbitrator selected by mutual agreement of the Parties. The arbitrator will not act as amiable compositeur or ex aequo et bono. It is the intent of the parties that, barring extraordinary circumstances, arbitration proceedings will be concluded within 60 days from the date the arbitrator is appointed. The arbitrator may extend this time limit in the interests of justice. Failure to adhere to this time limit shall not constitute a basis for challenging the award. The arbitration will be conducted in English and the place of arbitration will be Bangalore, India. Either party may, without waiving any remedy under this Agreement, apply to the arbitra....
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....otices to Google must be sent to Google India Pvt. Ltd., No.3, RMZ Infinity - Tower E, Old Madras Road, 4th Floor, Bangalore, 560016, India with a copy to Legal M/s. Google Ireland Ltd. Department, via confirmed facsimile, with a copy sent via first class or air mail or overnight courier, and are deemed given upon receipt. Notice to Customer may be effected by sending email to the email address specified in Customer's account, or by posting a message to Customer's account interface, and is deemed received when sent (for email) or no more than 15 days after having been posted (for messages in Customer's account interface). A waiver of any default is not a waiver of any subsequent default. Unenforceable provisions will be modified 10 reflect the parties' intention and only to the extent necessary to make them enforceable, and remaining provisions of the Agreement will remain in full effect. Customer may not assign any of its rights hereunder and any such attempt is void. Google and Customer and Google and Partners are not legal partners or agents, but are independent contractors. In the event that these Terms or an Advertising Program expire or is terminated,....
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...., read with explanation 4 thereof has not been properly appreciated." 22. Thus, the definition of the term "royalty" in Article 12(3) of the India - Ireland DT AA override the definition of "royalty" as provided in Explanation 2 to section 9(l)(vi) of the Act by virtue of section 90(2). Therefore, the definition of the term "royalty" under the India - Ireland DTAA being more beneficial to the assessee must only be considered in these appeals. The findings of the AO and CIT(A) as regards the characterisation of the payments to Google Ireland as 'Royalty' under section 9(l)(vi) of the Act is therefore not relevant and consequently correctness of these findings need not be adjudicated in these appeals. Similarly, we do not think it is necessary to decide whether the services agreement and distribution agreement are interlinked or complementary to each other. ITES services are enabling the overall business and not directly related to generating revenue from Adword Program in India. Revenue is generated by end customers clicking on link and not because of ITES services. Even if it is interlinked, the internal tools / intangibles / software of Google Ireland are admitted....
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.... of Engineering Analysis Centre of Excellence Private Limited (supra). The Supreme Court grouped the various appeals on the aspect of royalty issue on software payments into four categories as under:- Category 1: Computer software purchased by an end-user, resident in India, from a foreign non- resident supplier/manufacturer. Category 2: Purchase of computer software by resident Indian companies that act as distributors/resellers, from foreign non- resident suppliers for the purpose reselling the same to resident Indian users. Category 3: Purchase of software by foreign non- resident distributor from a foreign non-resident supplier for the purpose of reselling the same to Indian distributors or end-users. Category 4: Computer software affixed onto a hardware and sold as an integrated unit/equipment by foreign non-resident suppliers to Indian distributors or end-users. 25. The Supreme Court made a reference to the relevant provisions of the Copyright Act and on the interpretation of the same, it accepted the difference between a copyright right and copyrighted article. The important observations of the Supreme Court are summarized as follows:- "71....
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....ts that the owner continues to retain under section 14(b) of the Copyright Act read with sub-section (a)(i)-(vii) thereof Thus, the conclusion that when computer software is licensed for use under an EULA, what is also licensed is the right to use the copyright embedded therein, is wholly incorrect. The licence for the use of a product under an EULA cannot be construed as the licence spoken of in section 30 of the Copyright Act, as such EULA only imposes restrictive conditions upon the end-user and does not part with any interest relatable to any rights mentioned in sections 14(a) and 14(b) of the Copyright Act. **** ******** ****** 100. Also, any ruling on the more expansive language contained in the explanations to section 9(1)(vi) of the Income-tax Act would have to be ignored if it is wider and less beneficial to the assessee than the definition contained in the DTAA, as per section 90(2) of the Income-tax Act read with explanation 4 thereof and Article 3(2) of the DTAA. Further, the M/s. Google Ireland Ltd. expression "copyright" has to be understood in the context of the statute which deals with it, it being accepted that municipal laws which apply ....
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....tion, and the other acts mentioned in section 14 of the Copyright Act. (iv) A licence from a copyright owner, conferring no proprietary interest on the licensee, does not entail parting with any copyright, and is different from a licence issued under section 30 of the Copyright Act, which is a licence which grants the licensee an interest in the rights mentioned in section 14(a) and 14(b) of the Copyright Act. Where the core of a transaction is to authorize the end-user to have access to and make use of M/s. Google Ireland Ltd. the "licensed" computer software product over which the licensee has no exclusive rights, no copyright is parted with and consequently, no infringement takes place, as is recognized by section 52(l)(aa) of the Copyright Act. It makes no difference whether the end-user is enabled to use computer software that is customised to its specifications or otherwise. (v) A non-exclusive, non-transferable licence, merely enabling the use of a copyright product, is in the nature of restrictive conditions which are ancillary to such use, and cannot be construed as a licence to enjoy all or any of the enumerated rights mentioned in section 14 of....
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....te directly with Google Ireland. Distributor agrees that it shall provide minimum levels of service like Business hours phone support to all Advertisers, E-mail queries from Advertisers shall be responded to within one (l) business day with immediate resolution of any issues when possible. It was decided that the issues that cannot immediately be resolved by Distributor based on training and procedures provided under the Agreement must be communicated promptly to Google Ireland by Distributor / assessee, and Google Ireland will assist assessee / Distributor in determining the best solution. It was also agreed that the distributor agrees that Google Ireland will have the right, to review samples of communications sent to Advertisers to assess the quality of responses and modify communications accordingly. Google Ireland shall also have the right to send questionnaires to Distributor's customers to ensure that Distributor is providing an adequate level of service. 28. As per the standard Advertising program terms, the advertiser is solely responsible for all ad targeting options, keywords and all ad content. The advertiser represents and warrants that it holds and hereby....
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....(a)/(b) or section 30 of the Copyright Act, 1957 will not be satisfying the definition of Royalty under the Act / DTAA. Similarly, use of confidential information, software technology, training documents and others are all 'literary work' with copyrights in it owned by the foreign entity and there was no transfer or license of copyrights in favour of the assessee company. Hence, the impugned payments cannot be characterised as 'Royalty' under the DTAA. 31. The lower authorities have held that the assessee has been granted the use of or right to use trademarks, other brand features and the process owned by Google Ireland for the purpose of distribution of Adwords program and consequently the sums payable to Google Ireland are royalty. As per Article 12 of India - Ireland DTAA, consideration for the use of or right to use any patent, trade mark, design or model, plan, secret formula or process is regarded as royalty. In the present case, as per the distribution agreement, "Google Brand Features" means the Google trade names, trademarks, service marks, logos, domain names, and other distinctive brand features, with some but not all examples at"http://www.googl....
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....the said finding of CIT(A). Hence, the impugned payments cannot be regarded as made for 'use of or right to use industrial, commercial or scientific equipment'. The remaining portion of definition of 'Royalty' under the India - Ireland DT AA is consideration for information concerning industrial, commercial or scientific experience. The AO has not characterised the impugned payments as a consideration for the above. In any case, CIT(A) has given a finding that it cannot be said that any kind of technical knowhow has been transferred to the assessee company. This has not been challenged by the revenue. M/s. Google Ireland Ltd. 33. Thus on an overall analysis of the entire facts on record, we hold that the impugned payments cannot be regarded as royalty under the India - Ireland DTAA. It is true that the Google Adword program was commercially and profitably exploited in a commercial sense and profitable manner in India to generate revenues from Indian customers or advertisers. This is the business or commercial aspect of the transaction. However, the stand of the lower authorities that the impugned payments are in the nature of Royalty cannot be uphe....
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....e Ireland Ltd. CIT(A) held them to be royalty. The Tribunal relied on the decision in Yahoo (supra) to delete the disallowance. It was also observed by the Tribunal that the said payments were business profits, which were not taxable in India, since GIL did not have a PE in India. (iii) Right Florists (supra): Right Florist was a florist who used Google Search Engine for online advertising, to generate more business for itself. In this case again, the AO had disallowed the payments made by Right Florist for online advertising under section 40(a)(i) of the Act. However, the CIT(A) reversed the said decision on the ground that none of the recipients of the payments had a PE in India. The Tribunal, in Department's appeal, upheld the order of the CIT(A), while observing that the decisions in Yahoo (supra) and Pinstorm (supra) were authorities in support of the proposition that payment by the Indian arm of a foreign owner of search engine portal, in connection with online advertising, is not in the nature of royalty as per section 9(1)(vi) of the Act. In this decision, the Tribunal also discussed the modalities involved in the online advertising business, in the co....
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.... CIT(A) and held the payments in question to be neither royalty, nor FTS. (viii) Matrimony.com (supra): Matrimony.com in this case, made payments to Facebook Ireland Ltd. for online advertising. The AO in this case as well, disallowed the said payments under section 40(a)(i) of the Act, which action was upheld by the CIT(A). The Tribunal followed the decision in Urban Ladder (supra), while deleting the said disallowance. (ix) ESPN Digital Media (supra): ESPN India in this case, entered into a re-seller agreement with ESPN UK, for the resale of online advertisement space. In terms thereof, ESPN India purchased online advertisement space for re-sale to Indian advertisers. For this purchase, it made payments to ESPN UK, which were characterised as royalty by the AO. The CIT(A) upheld the order of the AO. The Tribunal, in second appeal, set aside the order of the CIT(A), while observing that ESPN India was merely making payment under the re- seller agreement towards purchase of online advertisement space. It was also observed that a website is not a tangible property and is certainly not a high-tech equipment. It was also observed that the reliance of the AO and CIT(A....
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....ng for online advertisement under Article 7, and not Article 12 of the relevant DTAA. 37. Therefore, in terms of the international guidance as stated herein, the position regarding taxability of receipts from sale of online advertisement space is clear. Unless the non- resident, who is engaged in sale of online advertisement space, has a PE in India, no portion of receipts earned by it from sale of online advertisement space in India can be brought to tax in India as Act read with the relevant DTAA. 38. The above view is also supported by insertion of provisions related to Equalisation Levy (EL) by Finance Act, 2016. The root for the emergence of the EL can be traced to the dynamic business models that have the ability to transcend the link between an income producing activity and a specific location since these business are carried in the cyber place. The PE definition presently is based upon the physical presence criteria. The new business models also created challenges in characterizing the nature of payment - whether the payment is for services or for any IPR and hence royalty or whether it represents pure business profits. Various ITAT decisions, as discussed....
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....on from Department of Tourism of India and after retaining its margin, the balance was remitted to Yahoo Hong Kong. The payment remitted by Yahoo India to Yahoo Hong Kong was the subject matter of dispute before the Tribunal. The AO as well as CIT(A) held such payments to be royalty and in that manner, disallowed the expenditure in the hands of Yahoo India under section 40(a) of the Act. The Tribunal, in second appeal, held that banner M/s. Google Ireland Ltd. advertisement hosting services did not involve use or right to use any industrial, commercial, or scientific equipment and no such use was granted by Yahoo Hong Kong. In that manner, the Tribunal set aside the findings of the AO and CIT(A), wherein the subject payments were characterised as royalty. (ii) Pinstorm (supra): Pinstorm was engaged in buying online advertisement space for onward re- sale to an advertiser, much like GIPL in the present case. For such purpose, Pinstorm made payments to GIL, which were disallowed by the AO and CIT(A) under section 40(a)(i) of the Act, on the premise that the said payments were taxable in India. While the AO held the said payments to be fees for technical services ("F....
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.... the Hon'ble Supreme Court in Engineering Analysis (supra). The Hon'ble Tribunal also relied on the decisions in Yahoo (supra), Pinstorm (supra) and Right Florists (supra). (vi) Myntra Designs (supra): Myntra in this case, made payments to Facebook Ireland Ltd., for online advertising. The AO held the said payments to be royalty and in the alternate, as FTS. The CIT(A) upheld the order of the AO. The Tribunal followed the decision in Urban Ladder (supra), while setting aside the order of the CIT(A). (vii) Play Games (supra): Play games is engaged in the business of providing a platform for online gaming. It had made payments to Facebook Ireland Ltd. for online advertising. The AO and CIT(A) in this case as well, held that payments to be taxable in India. The Hon'ble Tribunal observed that Play Games did not get any right to modify/ deal with the servers, which belonged to Facebook Ireland Ltd., in any manner. It was also observed inter alia that the said servers, which hosted online advertisements, were located outside India and that Facebook Ireland Ltd. did not have a PE in India. In that manner, the Tribunal set aside the order of the CIT(A) and hel....
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....see to Google Ireland is not liable to be taxed as Royalty for the years under consideration and therefore no disallowance can be made u/s. 40(a)(i). 7.4 Regarding applicability of FTS provisions, this Bench had called for submissions from the ld. A.R., which was submitted and is placed on record. In respect of the applicability of FTS under the Act as well as DTAA, it was submitted that the issue of FTS arises only for A.Ys. 2010-11 to 2012-13. It is submitted that the FTS is defined under Article 12(3)(b) of the Double Taxation Avoidance Agreement between India and Ireland ("India - Ireland Tax Treaty"), as under: "The term 'fees for technical services" means payment of any kind in consideration for the rendering of any managerial, technical or consultancy services including the provision of services by technical or other personnel but does not include payments for services mentioned in Articles 14 and 15 of this Convention." 7.5 It is submitted that the definition of FTS under the Act and India-Ireland tax treaty is identically worded and therefore in order to fall within the scope of FTS, the consideration paid ought to be for rendition of manager....
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.... 7.8 He submitted that the DRP while dealing with the issue followed the directions of its predecessors for A.Y. 2009-10, to hold the payments to be in the nature of FTS. However, the Ld. Counsel submitted that, the entire discussions by the DRP is based on characterising the said payment to be in the nature of royalty. 7.9 The Ld. Counsel while arguing against the said payment to be in the nature of FTS, submitted that, in case of certain payees as observed by the Coordinate Bench while considering the issue in the hands of Google Ireland in ITA No. 2845/Bang/2017 vide order dated 28.2.2023 held the payments to be in the nature of business profits. However, this Tribunal further held that as there is no PE, that is established in India of the Google Ireland, such payment could not have been held to be taxable in India. 7.10 The Ld.Counsel referred to the reliance placed by Coordinate Bench of this Tribunal while deciding the issue in case of Google Ireland Ltd. (supra) (which already has been reproduced hereinabove). For the sake of reference and at the cost of repetition, the same is reproduced hereinbelow: "10. As regards receipt of Rs.51,....
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....hat none of the recipients of the payments had a PE in India. The Tribunal, in Department's appeal, upheld the order of the CIT(A), while observing that the decisions in Yahoo (supra) and Pinstorm (supra) were authorities in support of the proposition that payment by the Indian arm of a foreign owner of search engine portal, in connection with online advertising, is not in the nature of royalty as per section 9(1)(vi) of the Act. In this decision, the Tribunal also discussed the modalities involved in the online advertising business, in the context of Google Search Engine. (iv) Inception Business (supra): In this case the assessee was engaged in the business of brand management as well as posting advertisements in the social portal on behalf of their clients. The AO held the payments made by it for that purpose to Facebook Ireland Ltd., a non-resident, to be taxable in India. The CIT(A) upheld the order of the AO. The Tribunal relied on the decision in Yahoo (supra), Pinstorm (supra), Right Florists (supra), while setting aside the order of the AO/ CIT(A) and holding that the payments for purchase of online advertisement space were not taxable in India. (v) Ur....
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....isement space for re-sale to Indian advertisers. For this purchase, it made payments to ESPN UK, which were characterised as royalty by the AO. The CIT(A) upheld the order of the AO. The Tribunal, in second appeal, set aside the order of the CIT(A), while observing that ESPN India was merely making payment under the re- seller agreement towards purchase of online advertisement space. It was also observed that a website is not a tangible property and is M/s. Google Ireland Ltd. certainly not a high-tech equipment. It was also observed that the reliance of the AO and CIT(A) on the decision in Verizon Communications Singapore Pte Ltd. v. ITO, (2014) 361 ITR 575 (Madras High Court) was misplaced, since the same had been overruled by the Hon'ble Supreme Court in the decision in Engineering Analysis (supra). (x) Interactive Avenues (supra): Interactive Avenues is an internet advertising agency, which places online advertisements on behalf of its clients. The payments in this case were made to Facebook Ireland Ltd., which were disallowed by the AO and the CIT(A). The Tribunal observed that Interactive Avenues was utilising Google Search Engine amongst others, to buy ....
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....ategorise the amounts paid by assessee to Google Ireland to be FTS. Further, it is also held that the assessee is not a dependent agent PE of Google Ireland in order to bring to tax the business profits of Google Ireland in India. Nothing contrary to the observations of the Coordinate Bench of this Tribunal has been brought to our notice. Respectfully following the above, we hold that the payments paid by the assessee to Google Ireland cannot be treated as FTS and therefore no disallowance could have been made u/s. 40(a)(i). Accordingly, this issue for the years under consideration stands allowed in favour of the assessee." 9.2. Respectfully following the above views, we hold that the assessee cannot be treated as a dependent agent of Google Ireland and the payments made to Google Ireland cannot be treated as FTS or Royalty. Accordingly Ground nos. 25-29 raised by the stands allowed. 10. Ground No. 33 - 34 raised by the assessee on Levy of interest under section 234B of the Income-tax Act, 1961 ("Act") and the initiation of penalty proceedings under section 271(1)(c) of the Act: As these grounds being consequential in nature they need not be adjudicated. Accord....
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....fully following the above, we direct the Ld.AO to recompute the deduction available to the assessee under section 10 A of the Act as per the directions of Hon'ble Supreme Court. Accordingly Grounds 8-9 raised by the revenue stands dismissed. 13. Grounds 10-11 is raised by the revenue challenging the action of the Ld.CIT(A) in excluding Coral Hub comparable from the final set under the IT segment. 13.1. The Revenue is also challenging the issue of considering the unallocated expenditure for Accropetal Technologies Ltd., chosen by the Ld.TPO under the IT segment by treating the assessee as a KPO. We have already remanded the issue of bench marking the IT segment to the Ld.AO/TPO in accordance with the APA with a direction not to consider the assessee to be a KPO under the IT segment. It is also directed to use TNMM as the MAM for determining the arms length of the transaction. As we have remanded the entire issue to the Ld.TPO for computing the ALP of IT segment de novo as per the directions, the issue of comparables also stands remanded. The comparables are therefore to be selected to be in accordance with law. Accordingly Grounds 10-11 becomes infructuous and accordi....
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.... revenue stands partly allowed. Order pronounced in the open court on 22nd December, 2023 ============= Document 1 Amount of Adjustment In respect to international transactions entered into by Google India AMOUNT (in Rupees) 835,087,934 with Google Ireland on aggregated basis In respect to IT Services to Google Inc USA Total 448,424,329 1,283,512,263 Document 2 7.4 Summary: Information Technology and IT enabled Services 7.4.1 Functions Google Description of Functions AES Comments India Product Intangible Development of research programme Conducts research Conducts research for improvement of existing products Testing of products Business strategy and Conceptualization Identifying the business opportunity Generating idea/business ÑопÑер Development of operating/business plan Marketing Function Marketing of product and Services Document 3 Google Description of Functions AEx Comments India Service Function Planning service schedules Quality of services Training personnel and developing training materials AE and Google Ind....